Friday, August 25, 2006

Calls of Note Part 2

* Baird notes their Q206 hematologist survey shows solid Revlimid patient share gains, and they believe expectations for 2006 are quite doable. However, with big expectations for increased penetration in 2007, they worry that early increases in safety signals may temper uptake next year. Firm continues to model 2007 Revlimid revenue well below consensus and remain cautious on CELG shares.

Firm notes that since Revlimid's greater adoption by physicians, they have seen more reports of adverse events. In firm's survey, 70% (up from 50%) of hematologists have seen AEs in their Revlimid patients. Again, the proportion of physicians reporting these events is rather unsurprising, given the clinical trial data, but what stands out from the survey data are possibly significant AEs, including sepsis, thrombosis, neuropathy and myelosuppression.

With 2007 consensus expectations (~$840M) presupposing a sizeable up-tick in patient share, they continue to monitor safety experience, and model just $624M in Revlimid revenue next year. At its current premium valuation, CELG appears priced to meet or exceed consensus expectations. Reiterates Neutral rating.

* Citigroup notes they have conducted an analysis of Revlimid's potential gross margins and conclude that due to premium pricing, high potency, lower royalty obligations, and lower COGS than Thalomid, Revlimid's GMs could approach ~97% at full commercial manufacturing scale vs. Thalomid's estimated 84%. At full scale, they anticipate that Revlimid's COGS could be 1-3% w/additional 1% royalty obligations to a third party for intellectual property rights. Whereas Revlimid posted 92% GM in Q2, each 100bp improvement could contribute $0.01, $0.02 and $0.03 to non GAAP EPS in '07-'09, respectively. This would boost firm's target price by ~$1 based on '08 financial estimates.

Celgene remains Citi's best large-cap idea and they encourage investors to use the recent 18% profit-taking pullback as an entry point. Maintains Buy and $58 tgt.